Copom keeps base rate at 6.5% but hints at future hikes

In its last meeting before the October presidential elections, the Monetary Policy Committee (Copom) kept base rate Selic stable at 6.5% for the fourth consecutive time. 

Recession Risk is Low for 2019

The Brazilian economy’s recovery is slow and fragile but the risk today of a new recession is “very low,” says economist Marcelle Chauvet, of the University of California, Riverside.

"The factors of uncertainty, which are several, do not cause a recession; they act as if it were a brake on production and consumption," says Ms. Chauvet, a member of the Brazilian Economic Cycles Dating Committee (Codace) of Fundação Getulio Vargas (FGV).

For 2019, she sees an open scenario for the Brazilian economy but cannot rule out a recession or a stronger growth of activity depending on the electoral outcome.

Copom likely to keep Selic unchanged until 2019

Emerging markets seem to have won some respite from recent tailwinds, but base interest rate Selic remains at a record low of 6.5%.

Oil Rig Trades Distort Current Account Indicators

As a result of changes in the oil industry’s tax regime, oil rigs boosted imports and exports this year and distorted some foreign-trade indicators.

From January to August, purchases of oil platforms from abroad totaled $7.3 billion, compared to only $1 million in the same period of 2017. Without the oil rigs, imports grew 15.8% through August, and not 23% as shown in the overall figures.

Finance minister prepares business tax cut proposal

The economic team has intensified discussions around a proposal to reduce the Corporate Income Tax (IRPJ) as a way to follow the changes made in the US.

Finance Minister Eduardo Guardia told President Michel Temer that as soon as the model to compensate for the cut of this tax is ready he will present him with the proposed bill to be sent to Congress, say people familiar with the matter.

Guardia urges pension reform still in 2018

Eduardo Guardia

In meetings with the advisers of the leading presidential candidates, Finance Minister Eduardo Guardia and Central Bank president Ilan Goldfajn have said that the pension reform that is in Congress can and should be passed right after the elections, still in the months of November and December, as long as the president to be elected in October is in agreement. The reform is the passport to a gradual adjustment of public accounts. And without it “there is no way,” Mr. Guardia said and repeated.

“It is a luxury, at this point in the race, to be able to speak still of gradual adjustment. Most countries were not able to do it. Look at what happened in Argentina! We will be able if the reform bill passes and there is commitment to the spending cap,” Mr. Guardia assured to Valor. Then, if the new president wants to make more changes in the pension regime, he or she can do it, but having already approved a minimum.

Taxation of investment funds: the new intended regime

The Brazilian government again intends to change the taxation of investments in certain Brazilian funds, especially FIPs and closed-end funds, effective January 1st, 2019.

Similar changes had already been attempted via Provisional Measure (“PM”) No. 806, of October 30, 2017, which was not timely converted into law by Congress and thus expired. Now President Michel Temer has submitted a new bill to Congress (Bill No. 10,638/2018) with similar contents.

Closed-end funds, which currently are taxed only upon amortization or liquidation, would be subject to biannual Withholding Income Tax (“WHT”) collection, with past-accumulated gains being taxed at once, which may be challenged on Constitutional grounds.